S-curve growth

models for insurance

penetration
Mabel Ramrez, Industrias Peoles, Mxico
Tapen Sinha, ITAM, Mxico

Rudolf Enz s-curve*

* The S-Curve Relation Between per-capita Income and Insurance Penetration, Published by The Geneva Papers on Risk and Insurance, Vol.
25, No. 3 (July, 2000) pp. 396-406.

Rudolf Enz s-curve: Penetration Life

Minimum
penetration: 0.6%

Maximum
penetration: 3.8%

Inflection point at
US$13,863 GDP
per capita.

Max income
elasticity of 1.5 at
US$9,900 GDP
per capita.
Chart depicts the s-curve using only points for the year 1998.

Rudolf Enz s-curve: Penetration Non-Life

Minimum
penetration: 0.9%

Maximum
penetration: 2.8%

Inflection point at
US$4,871 GDP
per capita.

Max income
elasticity of 1.9 at
US$15,000 GDP
per capita.
Chart depicts the s-curve using only points for the year 1998.

Mexican Insurance Market

Penetration and per capita GDP for the period: 1945
2010.

Mexican insurance penetration

Income elasticity in the model of Enz.
1945-1982 : Low income stage
1982-2010 : Exponential growth stage
Year

Estimated min. and max.

boundaries for insurance depth

Real insurance
penetration
(Mexico)

2000

(1.1867% , 1.1873%)

1.21%

2010

(1.236%, 1.290%)

1.96%

Mexican insurance penetration

Correlation between Penetration and per capita GDP in the
model of Enz.

1945-1982 : Demand-Following pattern

1982-2010 : Demand-Following pattern
Granger Causality
Direction

Type of causality

Sustained?

PEN GDP per capita

GDP per capita PEN

Short-run
Short-run

NO
YES

Mexican insurance penetration

Hofstedes cultural dimensions:

The demand for life insurance in Mexico and

USA
(Truett and Truett)

* Published by The Journal of Risk and Insurance, Vol. 57, No. 2 (June, 1990) pp. 321-328.

Why Truett and Truett analysis is wrong

Variable
per capita GDP
Mexico

Type of variable
Level
Logarithmic
transformation

ADF
statistic

Unit
Root?

2.382996

Yes

0.124402

Yes

Conclusions
The s-curve model is a country comparison of different levels of per
capita income, but is not a reliable predictor on insurance penetration
for an individual country. Correlation between insurance penetration
and per capita GDP does not predict how insurance penetration will
rise as the country becomes wealthier over time.

The use of s-curve models explaining the insurance market penetration

in a specific country or line of business presents a number of
theoretical and practical problems. Individual adjustment by country is
based on assumptions of economic growth and social behavior that
cannot be applied in general. Therefore, if this heterogeneity is not
acknowledged, the results given by an s-curve will only be applicable to
an average country, raising the question of the existence of a country
that can serve as "representative" for this type of analysis.

Conclusions
We need to consider that the assumption of one-in-a-kind income
(represented by the GDP per capita) for a whole country may be
superficial, income distribution inside a country may have an
impact on the aggregate insurance demand.

Further analysis must be performed to identify a model that

address individual characteristics for each country

Zurich in-depth survey of the factors that have slowed the

expansion of insurance markets in Latin America: lack of sufficient
education about insurance as the greatest impediment to market
development. Other factors were lack of confidence in the judicial
system and law enforcements failure to collect information about
thefts and automobile accidents.

Thank you!